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Retirement is often treated like a single life-stage, but it's far from being this simple.

In most retirement planning literature, "retirement" is fairly one-dimensional. It starts at the date you retire and ends at death, with (hopefully) a steady stream of annual income in between those two points.

In reality, retirement can be like any other multi-decade phase of your life. You might have sources of income that start and stop, which can make planning less predictable -- and a lot more dynamic. In other words, retirement isn't so simple anymore. Here's what you need to know to prepare.

The stages of retirement If you consider a "stage" to be a time when a source of income is added to the mix or subtracted from it, then by one analysis only 27% of households have just one stage. In other words, less than 30% of households will go through their retirements with a single mix of income sources.

Between starting a part-time job, beginning Social Security and/or defined benefit plan income, and drawing down on retirement or other assets, the majority of households see changes to their income sources over time. In fact, nearly 40% of households go through two such changes, and the researchers were surprised to find that 5% have more than five.

Changes to income sources isn't necessarily a bad thing; it just means that retirees are adjusting their lifestyles and the way they fund them over time. However, it is a reality that should be taken into account in your own planning. Appealing as it might be to have a "set" income or budget for your retirement, the fact is that you might not only have variations in the amount you spend, but also variations in where that money is coming from.

Planning aheadAs the authors of this study point out, it may be difficult to time your cash flows effectively if you have multiple potential sources that start and stop. Forecasting, after all, is never easy.

It might help to think about your own potential income stages. Try asking yourself the following questions to get started.

What are my potential income sources in retirement? How flexible are they?

Do I or my spouse intend to work part-time after retirement? For how long?

How much income do we need for now? How might this change over time?

If something prevents us from working (health problem, injury), what will our income options be?

When do we intend to draw down on our retirement assets? How is our portfolio allocated? Do we have other income sources that might be available (annuities, property income, etc.)?

Of course, it's difficult to project how much money you'll need in a decade or two at the best of times. Add uncertainty about changing healthcare costs and investment returns, and the issue gets even murkier.

The key, then, is to recognize that retirement income planning will be a dynamic process. In the meantime, plan conservatively to the extent that you can. That means building a drawdown plan that can survive a market downturn or a health scare. It also means considering insurance options to reduce uncertainty (annuities have a bad rap but basic ones basically take the complexity out of income planning altogether, and the research shows that the cost is usually very competitive).

If all goes well, retirement will bring you decades of new experiences and personal fulfillment. It will, like any other part of life, also bring uncertainty. Prepare yourself mentally and financially for change, and hopefully your retirement will be much more enjoyable for it.

Author

Anna began her career in finance as a college intern at a hedge fund, and she hasn’t been able to escape its siren song ever since. She’s done academic research at Harvard Business School and UCLA, was the COO of a wealth management firm, and now writes about finance, economics, behavior, and business.